Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy? It's down 42% since the Australian share market started declining.
The Australian banking sector has been turned upside down by the coronavirus pandemic.
Between all of the big ASX banks like ANZ, National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Macquarie Group Ltd (ASX: MQG), they have already provisioned billions of dollars for the economic impacts of the coronavirus. Commonwealth Bank of Australia (ASX: CBA) is yet to announce its own estimated pain.
In the recent half-year ANZ result announced that statutory profit after tax was down 51% to $1.55 billion. Cash profit was down 60% to $1.41 billion. The decline was driven by credit impairment charges of $1.67 billion which included increased credit reserves for coronavirus impacts of $1.031 billion.
Clearly bank investors had mostly been expecting something like this because the ANZ share price is currently down 41% to $16 today and on 23 March 2020 it had plunged to around $14.
Was it the right call to defer the ANZ dividend?
I think it was. In my mind it's a much wiser move to defer the dividend and not do a capital raising at a dilutive share price. We're still early into this whole situation. The economic fallout could last a lot longer than just the length of government restrictions.
On the economic side of things it's good the Australia is in a position where lockdowns can start to be lifted. But a lot of industries are still being heavily disrupted. ANZ can't truly say yet how much bad debts it will face because the situation is changing every week.
If it turns out better than expected than ANZ may still be able to pay a dividend later in the year. ANZ could also decide not to pay a dividend at all, depending on what happens.
Is the ANZ share price a buy?
If you believe the worst of the economic pain is already known then perhaps the ANZ share price is a buy. It's already fallen a lot – how much further could it fall?
I'm not sure it's good to buy yet though. I'd want to wait a few months to see what happens next. It could stay at this lower level for some time. There's a chance that the market is feeling a bit too confident about the rest of 2020. I wouldn't buy it thinking profit and dividends will resume quickly. Low interest rates are here to stay for at least a few years.
